Fed’s Plans to Phase Out Quantitative Easing - Your Bottom Line

Date: July 19, 2013

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Quick Facts:
  • The Fed is planning to end the practice of Quantitative Easing, which has caused artificial stock market growth.
  • The Fed is currently paying out $3.2 trillion per month to private sellers for bonds and securities.
  • Financial markets worry about the negative effects on capital and stocks, once the government stops pumping money into the system
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July 20, 2013 – The Federal Reserve’s initiative to end quantitative easing has financial markets nervous about bursting the current stock market bubble, reports NFIB’s chief economist, Bill Dunkelberg.

Quantitative easing (QE) has been employed by the government in previous periods of economic instability to increase capital.

One major profiteer: the stock market. As the government buys treasury bonds and government mortgage securities, the price of bonds is inflated by the demand. The stock market is the natural alternative for those looking to invest, and as bond prices have increased, stock prices have fallen.

Currently, the Fed is buying $45 billion in treasury bonds and $40 billion in government mortgages per month, which it is paying to private sellers.  But what will happen when the quantitative easing stops?

“We cannot avoid rising interest rates and their impact on asset prices,” said Dunkelberg of the impending shift in demand; as soon as the government stops buying bonds, demand for stocks will inevitably fall.

In terms of finding a solution, the horizon is admittedly bleak. Unless policymakers in Washington D.C. are prepared to make changes, there is no mitigating the negative impact. Thus, the future market after QE: wait and see.

About Your Bottom Line with Bill Dunkelberg

NFIB’s web series, Your Bottom Line With Bill Dunkelberg, helps small business owners learn more about what drives the economy and how economic issues affect their businesses. William Dunkelberg, NFIB’s chief economist and one of the nation’s top experts on small business, entrepreneurship, consumer behavior and consumer credit policy, hosts the series.

About NFIB

NFIB is the nation’s leading small business association, with offices in Washington, D.C., and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan organization, NFIB gives small and independent business owners a voice in shaping the public policy issues that affect their business. NFIB’s powerful network of grassroots activists send their views directly to state and federal lawmakers through a unique member-only ballot, thus playing a critical role in supporting America’s free enterprise system. NFIB’s mission is to promote and protect the right of members to own, operate and grow their businesses. For more information visit www.nfib.com.

About William Dunkelberg

Bill DunkelbergWilliam C. Dunkelberg has been chief economist for NFIB since 1971. He is currently professor of Economics at the School of Business and Management, Temple University, and served as dean from 1987-94. He was director of the Center for the Advancement and Study of Entrepreneurship from 1991-94.

Dunkelberg is a nationally recognized authority on small business, entrepreneurship, consumer behavior and consumer credit policy. He has been an advisor to cabinet officers, a member of the Consumer Advisory Council of the Federal Reserve System and is a past president of the National Association of Business Economists. He has chaired the Census Advisory Committee and is an elected member of the Conference of Business Economists and the National Economic Issues Council. He is also a frequent contributor to broadcast and cable news programs and is often quoted in leading newspapers and magazines.

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